Owen Free v Blue Chip Accountants Pty Ltd - [2022] FWC 791

[2022] FWC 791

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009

s.394—Unfair dismissal

Owen Free
v

Blue Chip Accountants Pty Ltd

(U2020/13350)

COMMISSIONER HUNT

BRISBANE, 8 APRIL 2022

Application for costs pursuant to s.400A and s.611 of the Fair Work Act 2009 – whether no reasonable prospect of success of applicant at first instance – whether unreasonable act to continue application while costs were being incurred by the other party.

This decision concerns an application by Blue Chip Accountants Pty Ltd (Blue Chip or the Costs Applicant) made on 21 June 2021 seeking an order for costs against Mr Owen Free (Mr Free or the Costs Respondent) pursuant to ss.400A and 611 of the Fair Work Act 2009 (the Act).

On 8 October 2020, Mr Free made an application to the Fair Work Commission (the Commission) for an unfair dismissal remedy pursuant to s.394 of the Act. Mr Free was, for the latter part of the proceedings represented by a solicitor and Counsel.

On 19 October 2020, Blue Chip filed a Form F3 – Employer Response in response to the application. The form declared Blue Chip to be a small business, employing only 12 employees at the time of Mr Free’s dismissal.

I held a preliminary telephone conference on 9 November 2020 with the parties at which it was agreed that the hearing would be listed on 18 January 2021.

On 15 January 2021, three days before the hearing, I received advice from the parties that they had reached an in-principle agreement to settle the matter. The hearing listed on 18 January 2021 was vacated on that basis, and the parties advised that they would finalise the details of the agreement and revert to the Commission with news that the matter had been formally resolved.

On 24 February 2021, I received advice from the Respondent that a binding agreement could not be reached by the parties. The Respondent requested the matter be relisted for hearing.

On 25 February 2021, I advised the parties that Commissioner Booth could convene a Member-Assisted Conference (MAC) to assist the parties in resolving the matter. The MAC took place on 13 April 2021, however, the matter did not then resolve before Commissioner Booth.

I then relisted the hearing of the application for 19 May 2021. The application proceeded by video on 19 May 2021 as a determinative conference. On 3 June 2021, I provided a copy of the transcript of the determinative conference to the parties and directed that they file written closing submissions by 11 June 2021.

On 8 June 2021, Mr Free discontinued the unfair dismissal application.

A costs application made under Part 3-2 of the Act must be made within 14 days after the Commission determines the matter, or the matter is discontinued.[1] I am satisfied the costs application was made within 14 days after Mr Free discontinued the application.

Directions were issued in the costs application requiring the parties to file evidence and submissions. On 3 August 2021, my chambers sent correspondence proposing that the costs application be determined on the papers. Blue Chip advised that it was content for the matter to be decided on the papers. Mr Free did not provide any response.

Background to the substantive application

Mr Free commenced employment with Blue Chip’s predecessor firm on 24 September 1987 and remained with Blue Chip for some 33 years until he was dismissed on 22 September 2020 for an alleged failure to follow reasonable management directions on several occasions and engaging in dishonest conduct. Mr Geoffrey Sexton is the Director of Blue Chip and Ms Deborah Scanlan is the Practice Manager.

Mr Free’s wife, Ms Janet Free, was, as of 7 December 2020, the sole director of a company, Osprey Pty Ltd (Osprey). Osprey, as trustee for the Free Family Trust, held 40% of the units in the Blue Chip Accounting Unit Trust, and 40% of the shares in Blue Chip Accountants Pty Ltd, i.e. the Costs Applicant. Ms Free, as a unit holder in the trust, was generally represented by Mr Free in dealings concerning the affairs of the trust.

Ms Free’s evidence is that she was, as of 2015, the sole beneficiary of a Self-Manged Superannuation Fund (SMSF) named Montrose Superannuation Fund (the Montrose SMSF). Mr Free was also a beneficiary prior to 2015. Mr Free stated that Mr Sexton performed annual audits of the Montrose SMSF since its inception in 1998, relevantly in 2016 and 2017, but did not do so from 2018 onwards due to his registration as an auditor of self-managed superannuation funds having conditions imposed upon it by the Australian Securities and Investments Commission (ASIC). Mr Sexton denies that he audited the Montrose SMSF as alleged by Mr Free.

In around July 2017, a liquidator was appointed to Osprey, following a failure by Osprey to repay a loan it took out for an ultimately unsuccessful investment. Osprey was entitled to profit share payment from Blue Chip for previous years, the precise value of which had not yet been calculated at the time of the appointment of the liquidator. Ms Free stated that Mr Sexton ‘fixed up’ the outstanding accounts of the Montrose SMSF, allowing Blue Chip to pay moneys directly to the liquidator which it otherwise owed to Osprey, to settle Osprey’s debts.

Sometime in 2019, Mr Sexton advised Mr Free that he intended to sell the business of Blue Chip as it was his desire to prepare for retirement. An offer was made by Hooper Accountants (Hoopers) in March 2020 to buy the business. Quinn & Associates (the Broker) was appointed to broker the sale. Mr Free’s evidence was that the Broker had indicated to Mr Sexton that Mr Free’s concerns as to the sale of the business presented a problem for the sale of the business. Correspondence was presented suggesting action could be taken by the unit holders in Blue Chip to encourage Mr Free to agree to the sale terms.

On 7 July 2020, Blue Chip received notice from the Australian Taxation Office (ATO) of a review it was conducting into deductions claimed by seven clients of Blue Chip in their tax returns which were prepared and lodged by Blue Chip. Mr Free’s evidence is that two of these reviews related to returns prepared by him. This ATO review was discussed generally by Mr Free, Ms Scanlan and Mr Sexton on 23 July 2020 at a general business meeting.

On 3 August 2020, Blue Chip began to correspond with Mr Free through its solicitors, CLO Lawyers about the sale of the business and the possible continuation of Mr Free’s employment as a condition of the sale. Mr Free’s evidence was that Hoopers would not employ him unless he agreed to a restraint for five years. The letter to Mr Free reads as follows:

“We act for Blue Chip Accountants Pty Ltd as trustee for Blue Chip Accounting Unit Trust. We are instructed to act in respect of our client’s sale of the business, Blue Chip Accounting.
We understand that there have been discussions between the unit holders regarding the sale of the business and that you have indicated that you are not supportive of the current sale terms.
We are instructed that our client, as trustee for the Unit Trust, is agreeable with the terms of the latest offer and is inclined to accept the offer. We note that this will not require the consent of the unitholders. The terms of the offer are summarised as follows:-

1.        If the fees being sold are $1,200,000.00, the buyers will pay 80c in the dollar, being a purchase price of $960,000 for the goodwill and client base;
2.        There will be a 30% retention, which will be part released after 12 months with a further part to be released after 2 years on the condition that the above fees are retained by the buyers and you and Debbie remain with the business for those periods of time;
3.        Plant and equipment are to be valued and paid for separate to goodwill;
4.        The contract will be subject to Due Diligence and Finance;
5.        The offer includes a requirement for you and Debbie to continue to work full-time, with you to receive a salary of $120,000.00 plus superannuation, Debbie to receive $93,600 plus superannuation and Geoff to receive a part time pro rata salary of $93,600 plus superannuation. There is also an Employment Agreement (see the attached agreement), that each of you will be required to sign. The offer refers to 30% of the retention for Geoff to be released after 12 months and 15% to be released for you and Debbie after 12 months, with the remining 15% each to be released after 2 years, although we note that this will need to be amended on the basis that the retentions are paid to the unit trust, not the employees.

6. Each of you, Debbie and Geoff will be required to enter into a restrictive agreement of 5 years to protect the goodwill of the business which commences on the completion date of the sale of the business and if your employment ceases after the completion date, the 5 years recommences on the last day upon which your employment and services end.

As referred to above, our client as the sole trustee of the unit trust does not require the consent of the unit holders to sell the business. However, it would be preferable to have the consent of the unit holders to assist with a smooth transition.
We understand that you have raised objections with the above offer, although are also instructed that Geoff and Debbie both consent to the sale.

In the event that you do not accept the offer of employment, it is likely that the terms of the current offer will be re-negotiated. Our client expects that this will result in a reduced sale price and also possibly an increase in the retention amount. This would result in a less than ideal outcome and result in a reduced return for the unitholders, including you.
We are instructed to request that you reconsider your position in relation to the offer, noting that your salary offered by the buyer is more than you are currently being paid and your willingness to accept the employment offer will also increase the return that your trust will receive from the sale.

Irrespective of the above, our client intends to accept the offer with or without your agreement to enter into the employment agreement. Accordingly, please confirm within 14 days from the date of this correspondence whether you are willing to accept the offer. If we do not hear from you within this time, we will assume that you are not willing to accept and we will renegotiate the sale terms so that your continued employment is not a condition of the contract (noting, as referred to above, that this will likely result in a reduced sale price and increased retention amount).”

On 18 August 2020, Mr Free had an impromptu conversation with Mr Sexton and Ms Scanlan in relation to the ATO review, due to the deadline for Blue Chip’s response to the ATO drawing near. It is Mr Free’s evidence that Mr Sexton agreed during that conversation to respond to the enquiries on behalf of all three of them.

On 21 August 2020, Mr Sexton sent an email to Mr Free in which he raised his concerns that Mr Free had made representations that Mr Sexton had audited the Montrose SMSF in 2016 and 2017, while Mr Sexton denied having done so. On 27 August 2021, Mr Sexton re-sent this email to Mr Free to enquire as to whether Mr Free had received it. The email is produced below:

“Owen,
It has come to my attention that I have been noted as the auditor for your SMSF income tax return in the 2016 and 2017 years where I did not audited the files.
This is an email to put you on notice that I have already discussed the matter with the Institute of Chartered Accountants to obtain their guidance as to what course of action I should pursue.
Their advice was that I should put the matter before the Tax Practitioners Board. To date I have not done this as I wish to give you the opportunity to rectify the matter.
I therefore request that you submit you superannuation fund financial statements and taxation returns to an independent superannuation fund auditor.
I seek confirmation that you have taken such steps to correct the error in your superannuation fund tax return within 7 days from now. IE The end of next week
The declaration that in the super fund tax return that I conducted an audit of the fund when in fact I had not is fraudulent and a criminal offence. I am giving you the opportunity to put it right
Any income tax returns you lodge using my tax agents number must be presented to me for due consideration before lodgement.
I look forward to your prompt reply.”

I will deal later with Mr Free’s failure to respond to this correspondence.

On 27 August 2020, Mr Free met with Hoopers to further discuss his possible continued employment following its planned purchase of Blue Chip.

On Friday, 4 September 2020, email correspondence was sent between Mr Free and Mr Sexton in which Mr Sexton requested that Mr Free provide information required by the ATO to Ms Scanlan by Monday, 7 September 2020. Mr Free refused to do this, alleging that the request was unfair and that this was bullying, and further, that he had previously offered to do this on 18 August 2020. Mr Sexton responded that Ms Scanlan is the contact person for the ATO, and Mr Free’s response should be given to her, and that Mr Sexton was merely seeking ‘a few quick notes’ from Mr Free.

On 8 September 2020, Mr Free was given a letter from Blue Chip advising him that his employment was suspended with pay. Allegations were put to Mr Free, requiring him to respond by 10:30am on 11 September 2020. The letter, in its entirety, reads as follows:

“Re: Request for Response and Related Suspension
To Owen
We are writing to you in relation to our concerns about your refusal to follow reasonable management direction in your role with Blue Chip Accounting.
Specifically, we refer to two (2) occasions:
1) Refusal to follow reasonable management directions which were given in accordance with Instructions from the Australian Taxation Office (ATO). We refer to our conversations of 18/08/20 in which you were requested to respond to ATO requests for information to Deb Scanlan. You refused to do this. On 04/09/20 you were instructed by Geoff Sexton to provide a response by 07 /09/20. You again refused, stating that you felt the request to be unfair and unreasonable and cited bullying. At this point, we reiterated the procedures set in place by the ATO and that this was a simple, reasonable and fair request. You have continued to refuse to follow this reasonable management direction. We acknowledge that you indicated that you would prefer to communicate directly with the ATO; however have confirmed on a number of occasions that the process implemented by the ATO was for Deb Scanlan to be the single point of contact for the firm.
2) Refusal to follow reasonable management directions to explain the representation on your self-managed super fund return that Geoff Sexton had audited the fund when this had not occurred. You were emailed by Geoff Sexton on 21/08/20 requesting that an explanation be provided within 7 days. You were emailed again on 27 /08/20 to follow up on this request. To date no response has been received and the due date was 28/08/20. We see this as a serious matter of professional ethics and you were provided a reasonable management direction to respond to this on 2 occasions, however have refused to do so.
To address these concerns, there is a thorough and objective process that we follow that ensures that all parties are afforded the principals of natural justice. Most important to these situations, this includes the right to respond to the concerns before any conclusions are reached.
Owen, given the seriousness of the concerns, you will not be required to attend work until a determination can be made concerning the above-mentioned concerns or as otherwise directed by management. You will be paid for normal hours during this period and you must, during your ordinary working hours, be available for work at all times; attend any work, meetings or Interviews notified to you; and comply with any other lawful and reasonable direction from the Company (in its capacity as trustee for the unit trust). You are not to access any Company records during this time, nor have contact with any work-related parties (including but not limited to employees, clients, suppliers, or any other related entities). If you require specific information for your response, please direct your request to Deb Scanlan.
We also need to state that we do not tolerate victimisation of anyone involved in this process. Therefore, you must not victimise anyone in regard to this matter, and neither should you be subject to victimisation. Should you be subject to victimisation as a result of this matter, please immediately contact us.
Any conduct from you (or your associates) which breaches the above lawful and reasonable directions will not be tolerated and may result in disciplinary actions being taken against you, including the possible termination of your employment with the Company.
Employees involved in this process also have an obligation to ensure that the process remains confidential. As such, you are not to discuss this matter with any other employees of the Company, or any external parties other than your support person or appointed representative in relation to these matters while the matter is ongoing.
It is important that you understand the serious nature of this process. While no final decision on appropriate management action will be taken until you have been afforded the opportunity to respond, you should be aware that the above concerns may results in disciplinary action up to and including termination of your employment with the Company.
Please provide your response in writing to the above concerns by 10:30 am on Friday 11 September 2020. The Company will base any decisions on reasonable management action on the information at hand at that point in time.
The Company appreciates that being involved in this process is a difficult time for any employee and will make every attempt to finalise this matter in the most discrete and timely fashion.”

Mr Free states that upon being given a copy of the letter on 8 September 2020, he was verbally instructed by Mr Sexton to leave his office keys and that Mr Sexton said he would call the police if he did not read the letter. Mr Free also stated that the police arrived at the building as he was leaving.

On 9 September 2020, Mr Sexton sent the following email to Mr Free:

“Owen,
We refer to our discussion with you yesterday evening. We are greatly disappointed in your reaction and unwillingness to enter into a conversation with us to enable us to explain the situation to you.
Given the course of events, we now require you to respond to these further elements in addition to those listed in the letter provided to you yesterday (numbering continuing from the 2 points already in the letter):
3) When Deb closed the office blinds as part as closing up the office, you told her in an aggressive manner to not do so.
4) You were given a reasonable management direction to hand over your office keys and work laptop and you refused this direction leaving the office with these in your possession.
5) When asked for your keys you responded that you did not have them. We believe this to be dishonest as you used your office key to lock the front door after your client exited.
As per the letter provided to you yesterday, please provide your written response to these concerns by 10:30am on Friday 11^th September 2020.”

On 11 September 2020, Mr Free responded as follows:

“Dear Geoffrey

I refer to your letter dated 8 September 2020.
You have asked me to respond in writing to the matters raised by no later than 10.30am on 11 September 2020.
I record relevant facts as set out below.
1 . I have been employed by Blue Chip Accounting as a senior accountant for 22.5 years, following continuously from 10.5 years working for you, in your former business Geoff Sexton & Company.
2. On 3 August 2020 I received a letter from your lawyers, CLO Lawyers, telling me that the business of Blue Chip Accounting was being sold and that you were about to accept a sale offer. I was told that the proposed sale included a "requirement" for me to continue to work full time at a salary of $120,000 plus superannuation. An employment agreement was included that I was "required" to sign. Further I was told that I was "required" to sign a restrictive agreement of five years to protect the goodwill of the business. Further if my employment ceased after working for what would have been my new employer the restrictive period would commence again for a further five years. This was a highly onerous and oppressive requirement. I was not told to get legal advice. I was told further that if I did not agree to the terms of this new employment including the restrictive agreement the offer terms would be re-negotiated to a lesser amount. In addition, I was told that whether or not I accepted these oppressive terms, you intended to accept the offer. I was threatened that I had 14 days to tell you whether I was willing to accept the offer and if I did not agree the sale terms would be negotiated without my continuing employment.

3. Necessarily, as a result of your threats and ultimatums, on 17 August 2020 I emailed you to tell you that I had (reluctantly) contacted Hoopers to seek to discuss my possible continuing employment.
4. On 21 August you wrote to me through your lawyers, CLO Lawyers, directing me that the terms of my employment with Hoopers is a matter between myself and Hoopers. Clearly, consistent with your threats, you had made no arrangements for my continuing employment with Hoopers on the occasion of the sale of the business and had no intention to do so. I had been left to negotiate my own continuing employment. I was forced to make arrangements with Hoopers to discuss potential employment or be out of work. I was told specifically I had no capacity to discuss any of the terms of the sale of the business.
5. By 20 August 2020, I had not heard back from Hoopers. I emailed them asking for an appointment on Thursday 27 August 2020. I received an email back confirming that time.
6. At 8 am on 27 august 2020 I had a meeting with the representatives of Hoopers at their offices in Toowoomba. They talked about buying the business of Blue Chip Accounting. The substance of the conversation was that any offer of employment was subject to my signing a restraint in the nature of what you had described. Before any job would be offered to me, I had to sign a restraint even though it was not part of the terms of my current employment. I immediately felt threatened and knew that because of your complete refusal to arrange my continuing employment, I would very likely soon be out of a job. It was suggested to me that I could go and work for myself. I said that is not what I wanted to do, I wanted to continue working in my role. I was told that they would consider a revised offer and would get back to me within 2 weeks.
7. After the meeting with Hoopers I emailed CLO Lawyers telling them that Hoopers wanted to consider an arrangement for employing me and would get back to me within two weeks. I asked that Blue Chip Accounting refrain from signing any contracts to sell the business until an employment offer had been accepted.
8. Since the meeting with Hoopers and my emailing CLO Lawyers asking for my continuing employment to be arranged, the passive aggression from yourself and Debbie towards me, which had started from 4 August 2020 worsened. You and Debbie would not talk to me. I heard nothing further back from Hoopers nor from CLO Lawyers.
9. On 8 September 2020 at approximately 6:55 PM I was in my office working. I was about to make a couple of phone calls when my door opened and Debbie and you came in to my office. You handed me an envelope with my name on it and told me "...you're suspended". Both of you stood back from my desk with your arms folded like bouncers. Debbie started closing my blinds and I asked her why she was doing that. she told me "You need to read the letter". I said "or what?". You replied, "we will call the police." You then stepped out of my room and I heard you talking on the phone. When you came back into my office you said "you have to leave everything". Debbie then said "No, he can take his own property" but then told me "you have to leave the key," meaning that I had to leave the key to the office. I left via the back door taking the letter with me. The police then arrived in a van and parked behind my wife Janet's car who had incidentally just arrived at the office. I saw the police officers walk up to the front door of the office as Janet and I drove off.
10. The next day, 9 September 2020, I did not go to the office in the morning in accordance with the directions in the letter given to me. At approximately 1:15PM I called in to the office to pick up my phone charger which I had left in my office. I walked past the reception area which was unattended, and smiled to my personal assistant, Carmel, as I walked to my office. I immediately saw that my room had been emptied. My phone charger was no longer in its socket. I started looking in my drawers when Debbie walked into my office in an intimidating manner and told me "all your personal stuff is in here" and gestured to the cupboard behind her. I walked to the cupboard and opened the two doors on the left and I saw that there were two file boxes a laptop bag and bookends. I pointed to the other cupboard door behind where she stood but she told me "no, only those two, you have to take it now ". All this time I had not said a word . I lifted the first file box onto my desk, took off the lid and started to check the contents. It contained personal items from my desk. I opened the second box and saw that my phone charger was in there. Debbie asked Carmel to bring her phone to her which she did. Debbie then telephoned someone I presume to be you and said "Owen's here now. Can you come back to the office." I stacked the two boxes and took them to my car. I then went back to pick up my other possessions. Debbie had not moved. She said "your club is here" meaning my golf putter. I pointed out my other possessions noting artworks and said "they are mine". Debbie looked at me and sneered. In all this time I had only uttered those words. I did not take these other items. Despite my being told in writing that I was only suspended, all my personal items had been packed up and I was told to take them.
11. I received an email from you on 9 September 2020 asking me to explain and respond to my alleged "aggressive" behaviour when Debbie was closing my blinds and I was asked to hand over my keys and laptop. Clearly, I was not the party being aggressive.
12. In your letter of 8th September, you ask for response to two items that you refer to as management directions.
• ATO monitoring: As you know I initially provided a suggestion for a workable solution to the ATO queries. I also provided my reasons for considering the request to be unfair and oppressive. You did nothing about this. When you re-presented an abridged version of the task to me, I immediately expressed my concerns in terms of it being unreasonable as to time frame and workload. Your response to my concerns was nothing more than contrariness to my complaint. Your subsequent manifesto from the fair work web-site is entirely inappropriate to the issues which I had raised. In all the circumstances this was not a matter warranting the actions which you have taken.
• SMSF audit: As you know this is Janet's SMSF. Nevertheless, in the two years you refer to I did not do the work. I did not lodge the returns or direct anyone to do so. I did not audit the returns. I did not make representations that you audited the returns. Presumably this was done by other persons within the firm . You are mistaken or disingenuous in your allegations. Again, in the circumstances, there is no basis for the actions which have been taken against me.

The concerns you have raised in your letter of 8 September 2020 should be considered in the context of the history of your conduct, which I have set out in general terms in this letter.
Despite your alleged actions being to place me on "suspension", my desk has been packed up, I was told I must collect my personal belongings from the firm and hand over my key. Your statements that you will base any decisions on reasonable management action on the information to hand after any written response from me has not been adhered to. It has not been handled in a discrete and timely fashion. Blue Chip Account has taken pre-emptive actions purportedly on the basis of the matters set
out in your letter of 8 September 2020. The motives of management are however apparent from the circumstances set out this letter.
Yours Faithfully
Owen Free
11/9/2020 by email.”

On 14 September 2020, Mr Free was issued with a show cause letter, some eight pages long. In the letter, Blue Chip informed Mr Free that it had made a number of findings of serious misconduct. The most serious of those findings include:

“1) Refusal to follow reasonable management direction in relation to ATO requests for information.
Your Response:
a) That you have previous offered a workable solution.
b) That you provided reasons you felt this to be unfair and oppressive.
c) That you expressed concerns about the reasonableness of timeframes and workload.
d) That your concerns were not dealt with.
Our Position:
a) We have clarified in our previous Communication that the instructions are being given by the ATO and as such, are not ours to amend to other solutions
b) There was no mention in your email responses about concerns for timeframes and workload. However, for the purpose of clarity, given the original request to review files and provide information was on 11th August which you refused on 18th August and the follow up emails on 4th September set a deadline of 7th September, we do not believe the timeframes were unreasonable.
c) We believe that our communication has been clear on the reasonableness of direction and clarification that these actions were not unreasonable.
Outcome:
a) The directions provided were reasonable management directions and your response has not given us grounds to believe that your actions do not constitute refusal to follow these reasonable management directions.
b) In refusing to carry out these reasonable management directions, you place Blue Chip Accounting and the firm’s clients at risk. As advised on 7th July 2020, the ATO, at this point in time, are monitoring and reviewing all individual income tax returns that are lodged from 1st July 2020 until 31st October. If we do not provide reasonable and timely responses to their queries, and if claims continue to be substantially higher than expected, our case manager has advised she will potentially make the recommendation to the ATO to review high risk returns prior to refunds issuing to very claims; and conduct audits or reviews of clients. Monitoring is also then likely to continue until 30th June 2021.
c) In accordance with the Fair Work Benchbook, serious misconduct includes conduct which causes serious and imminent risk to the reputation, viability or profitability of the employer’s business.
d) In accordance with the Fair Work Benchbook, serious misconduct also includes the refusal to carry out lawful and reasonable instructions.
e) As such, your actions in this instance constitute serious misconduct.

2) Refusal to follow reasonable management direction to explain the representation on your self-managed super fund return that Geoff Sexton had audited the fund when this had not occurred.
Your Response:
a) Your response does not provided a reason
Our Position:
a) We believe that our request was reasonable and that you had failed to respond to the request.
Outcome:
a) The directions provided were reasonable management directions and your response has not given us grounds to believe that your actions do not constitute refusal to follow these reasonable management directions.
b) in accordance with the Fair Work Benchbook, serious misconduct includes the refusal to carry out lawful and reasonable instructions.
c) As such, your actions in this instance constitute serious misconduct.
[…]

6) In relation to your response about the lodging of the SMSF (FREE1005 – Montrose Superannuation Fund), you stated that you did not lodge the returns, nor direct anyone to lodge the returns. We have investigated this further and our findings are that:
a) There are only 3 other staff members with access tot hat client file within Handisoft. None of those staff have access to information which would enable them to prepare the financial statements or the income tax return. Therefore it is not possible that another staff member (Geof Sexton, Deb Scanlan or Robyn Lane) is responsible for completing the file ready to lodge.

b) The software records s how that you were the only user working on the file on 29 June and 30th June which was immediately prior to when the file was lodged (30 June 2020).

Our Position:
a) As such, we believe that your statement is a further matter of dishonesty.
Outcome:
a) In refusing to carry out these reasonable management directions, you place Blue Chip Accounting at risk . As you are aware, a related party (including business connections, which exist in this instance with me as Director of Blue Chip Accounting being your employer) cannot conduct related SMSF audits. ASIC required a declaration in early 2020 of the independence of my auditing activity and this was given. Lodging the file with myself listed as auditor is a direct contradiction to that declaration. This means that your actions may give rise to ASIC believing we are breaching their guideline and the Tax Practitioners Board deeming that we are not able to conduct further audits. This would have a serious impact on our business.
b) In accordance with the Fair Work Benchbook, serious misconduct includes conduct which causes serious and imminent risk to the reputation, viability or profitability of the employer’s business.
c) In accordance with the Fair Work Benchbook, misconduct may include employee dishonesty.
d) As such, your actions in this instance constitutes misconduct and serious misconduct.
7) In relation to Wednesday 9th September and your attendance at the office, we wish to point out that:
a) Your conduct was a direct refusal to follow reasonable management direction as per the letter provided to you on 8th September which stated "You are not to ... have contact with any work-related parties (including ... employees ... ). If you require specific information for your response, please direct your request to Deb Scanlan.
Our Position:
a) We believe that you were given a clear and reasonable management direction and that you refused to follow that direction.
b) Your attendance at the office was disconcerting and intimidating for members of the team.
Outcome:
a) In accordance with the Fair Work Bench book, serious misconduct includes the refusal to carry out lawful and reasonable instructions.
b) As such, your actions in this instance constitute serious misconduct. […]”

Blue Chip also rejected a number of Mr Free’s allegations, including that he was ‘required’ to sign a new employment contract, and that his desk had been ‘packed up’, saying that the office had been cleaned. Mr Free’s response was sought by 11:00am, 17 September 2020.

On 15 September 2020, Mr Free provided his response to the show cause letter dated 14 September 2020. Mr Free denied the vast majority of the allegations, and where he did not, he made submissions. In relation to the SMSF matter, Mr Free responded:

“2. This is incorrect.
I believed your email of 21st August was for the purposes of pressuring and intimidating me in respect of my forthcoming negotiations with Hoopers about what my prospective employment position with them would constitute. I did not have any reason to think that it was a management direction.

[…]
This is incorrect.
I can explain my access to the file on the 29th and 30th of June because I was working on the 2019 records so that the fund can be brought up to date. As I had told you I would, in anticipation of my bonus being paid as a superfund contribution. I have no other knowledge of the actions of others except to state that you Geoff, were the recorded auditor of the fund for each of the years from 1997 until when you had your SMSF auditor registration cancelled. […]”

Mr Free’s employment ended at the initiative of Blue Chip on 21 September 2020, having been issued the following letter:

“Dear Owen,
RE: Termination of Employment
I am writing to you about the termination of your employment with Blue Chip Accounting, effective immediately.
I refer to our recent correspondence relating our concerns with your conduct. Specifically, I refer to the communication involving:
•          our letter dated 08/09/20 and email dated 09/09/20 inviting you to respond to a number of concerns;
•          your response to our request dated 11/09/20;
•          our show cause letter dated 15/09/20 which was sent after giving consideration to your response;
•          your response to the show cause letter received 17 /09/20.
Based on the information available to us, we have reached the following conclusions in relation to the matters raised:
1)        You refused to follow reasonable management direction in relation to ATO requests for information.
a.         The directions provided were reasonable management directions and your responses on 11/09/20 and 17 /09/20 have not given us grounds to believe that your actions do not constitute refusal to follow these reasonable management directions.
b.        It is our reasonable expectation that an employee would comply with the request and assist in a response to the ATO.
c.         In refusing to carry out these directions, you unreasonably and unnecessarily placed Blue Chip Accounting at risk by way of reputation, and potential implications with the ATO. It also places the firm's clients at risk.
d.        In accordance with the Fair Work Benchbook, serious misconduct includes conduct which causes serious and imminent risk to the reputation, viability or profitability of the employer's business and refusal to carry out lawful and reasonable instructions.
e.         As such, your actions in this instance constitute serious misconduct.

2)        You refused to follow reasonable management direction to explain the representation on your self-managed super fund return that Geoff Sexton had audited the fund when this had not occurred.
a.         The directions provided were reasonable management directions and you did not provide a response, despite follow ups, until you were asked to explain your reason for not following direction in our letter dated 08/09/20. To be clear, in our letter we asked for the reason you were not responding to our direction, not for an actual response.
b.        In your letter received 15/09/20, you raise that you did not have reason to believe it was a management direction and that the request was for the purpose of pressuring and intimidating you for the forthcoming negotiations with Hoopers.
c.         An email from the Managing Director of the firm with a clear instruction is a direction from management and we reject that you could not have known it to be such.
d.        We reject that there was a link to the negotiations with Hooper Accountants. There is no reference or indication that the two are linked, nor that undue pressure was applied in relation to the negotiations with Hoopers.
e.         In accordance with the Fair Work Bench book, serious misconduct includes the refusal to carry out lawful and reasonable instructions.
f.         As such, your actions in this instance constitute serious misconduct.

3)        Failure to follow reasonable management direction to hand over your office keys and work
laptop.
a)        The directions provided were reasonable management directions and your response has not given us grounds to believe that your actions do not constitute an ongoing refusal to follow these reasonable management directions as our property has not yet been returned.
b)        You were asked in our meeting on 08/09/20 to read the letter which contained the explanation. You refused to do this. We reject that you were being bullied in this situation. We were taking reasonable management action in relation to our concerns.
c)        You have not returned the laptop nor keys despite the instruction being clear and reiterated in our subsequent correspondence.
d)        In accordance with the Fair Work Benchbook, serious misconduct includes the refusal to carry out lawful and reasonable instructions.
e)        As such, your actions in this instance constitute serious misconduct.

4) Dishonesty in relation to the handling of the SMSF (FREE1005 - Montrose Superannuation Fund).
a) We acknowledge your denial, however there are no other parties that would have the required information or reason to complete the 2017 return. The electronic records on the files also show your access to the files and as such we believe there is evidence to a reasonable standard of proof that you were involved in and/or responsible for Geoff Sexton being listed as the auditor on the file when this was incorrect.

b)        Your conduct has placed Blue Chip Accounting and my standing with ASIC and the ATO at risk.
c)        In accordance with the Fair Work Benchbook, serious misconduct includes conduct which causes serious and imminent risk to the reputation, viability or profitability of the employer's business.
d)        In accordance with the Fair Work Benchbook, misconduct may include employee dishonesty.
e)        As such, your actions in this instance constitutes misconduct and serious misconduct.

We believe that each of the above issues constitute misconduct or serious misconduct in their own right and as such, each of the issues independently can be deemed as grounds for summary dismissal.
The other matter, which contributed to our decision, was your refusal to follow reasonable management direction not to have contact with work related parties by attending the office on 09/09/20. We reject that your contact with work related parties was 'incidental and unintentional'. There is no possibility that attending the office during work hours would not result in contact with work related parties. This act was disrespectful and was disconcerting and intimidating for members of the team.
To be clear, the matters relating to the business sale do not relate in any way to the matter and the decision to terminate your employment. This decision is solely related to your conduct and refusal to comply with reasonable management direction.
In summary, we consider the actions specified above constitute serious misconduct warranting summary dismissal.
You will be paid your accrued entitlements and any outstanding pay up to and including your last day of employment. These payments will be made into your nominated bank account during the next pay cycle.
All Company property must be returned to Blue Chip Accounting immediately. Please contact me to arrange return of this property, including any client files you have in your possession. Should this property not be returned by close of business Wednesday 23/09/2020, we reserve the right to take legal action.
We wish to advise that we reserve the right to enforce ongoing obligations that prohibit you from undermining Blue Chip Accounting's legitimate business interests, especially as it relates to Blue Chip Accounting's trade secrets, confidential information and client information. This includes any confidential information that was shared with you during the course of your employment or in the course of acting in any capacity relating to the holding of unit shares.
You ought to also be aware that section 183 of the Corporations Act 2001 (Cth), makes it unlawful for an employee to use the confidential information of a company (such as Blue Chip Accounting):
•          to gain an advantage for yourself;-or
•          to cause detriment to that company (for example, Blue Chip Accounting).
Further, section 184 of the Corporations Act 2001 (Cth), makes it an offence for an employee to use confidential information:
•          that directly or indirectly gains an advantage for themselves or someone else or causes detriment to the company; or
•          recklessly, that results in the employee gaining an advantage for themselves or someone else and / or causes detriment to the company
Whether written into a contract or not, every employee has a duty to serve their employer in good faith and fidelity. Approaching clients of your previous employer with a view of soliciting their business and/or using their confidential information to their detriment is in breach of this duty.”

Application to the Commission for an unfair dismissal remedy

On 8 October 2020, Mr Free lodged an application for an unfair dismissal remedy pursuant to s.394 of the Act, seeking “compensation and costs”.

In his application, Mr Free provided the following reasons as to why he believed the dismissal to be unfair:

“1)         There was no valid reason for my dismissal.
2)        The Respondent became hostile towards me when I as the representative of a unit holder raised concerns about the sale of the business. For context, I have attached the letter dated 3 August 2020 that I received from CLO Lawyers.
3)        All the “reasons” are fabrications and/or exaggerations and are nothing more than a pretext and are completely disingenuous. In the first instance this was to bully me into acquiescing to a situation that I had previously said was not acceptable; and then when that failed to get me out of the way so they could continue to pursue their agenda.
4)        There was nothing that was communicated to me that could be reasonably taken to be counselling or warning except as that might be used to mean threatened. I was initially suspended from employment on the night of the 8th of September 2020 with a letter citing the first 2 of the above elusions. A further email on the 9th September made additional spurious allegations and gave further directions. Then a show-cause letter emailed on 15th September that included even more solecism than the final dismissal letter, but was constructed along the same lines.
5)        The dismissal is patently unfair. The pretext is nothing more than a veneer. The respondent was clearly acting out of rage and frustration that their earlier less blunt attempts (including lawyer’s letters) to bully me into giving up workplace rights had not had the desired effect. In the entire time frame between the first of the alleged reasons through to suspension and then dismissal there was not a single attempt by the respondent to address concerns, discuss or mediate a solution.
6)        The Respondent is not in possession of a sound, defensible or well-founded reason for the dismissal. They are not in possession of any reason.
7)        In such circumstances the dismissal is harsh, unjust and unreasonable.”

In the Form F3 – Employer Response filed by Blue Chip, it was stated that 12 employees were employed at the relevant time, however no jurisdictional objection was made relevant to the Small Business Fair Dismissal Code. In the directions issued by me I required the parties to address the Commission relevant to Blue Chip’s compliance with the Small Business Fair Dismissal Code.

The determinative conference took place by video on 19 May 2021. Mr Free appeared for himself and called his wife, Ms Free, as a witness. Blue Chip was represented by Mr Andrew Bland, Principal of Bland Law and called Mr Sexton and Ms Scanlan as witnesses. Some further materials, referred to during the determinative conference, but not yet before the Commission, were lodged by the parties during and after the determinative conference.

A transcript of the determinative conference was ordered. The parties had leave until 11 June 2021 to provide written closing submissions.

At 2:26pm on 8 June 2021, Mr Free sent the following correspondence to my chambers:

“Dear Commissioner,

I am writing to you to advise that I am discontinuing the above matter.

My circumstances are such that the amount and degree of conflicting priorities (not the least of which are matters directly brought on by the attempts of the respondent to cause frustration) have left me without the time or bandwidth to accord the appropriate attention the matter warrants and that proceeding in this situation could possibly result in an outcome that is unfavourable and possibly damaging to me for no other reason than my untrained argument.

Whilst still maintaining that my dismissal was harsh, unreasonable and unjust and that the contentions made against me were dishonest pretexts that could readily be impeached with the normal rules of evidence, the operation of the Small Business Fair Dismissal Code puts too low a bar to prevent the applicant getting off scot-free without the need for more and better resources than I can bring to the matter right now.

I apologise for any inconvenience and thank you for your consideration to date.

SINCERELY,

OWEN FREE”

Later that day, my chambers emailed the parties referencing Mr Free’s correspondence above and confirmed the directions for final submissions was vacated and that the Commission’s file in respect to the matter was closed.

The costs application proceedings

On 21 June 2021, an application for costs in the amount of $53,447.16 was made.

Blue Chip provided the following background information in its costs application around the settlement process, much of which information was not before the Commission prior to Mr Free’s discontinuance of the application:

“6. On about 15 January 2021, the parties agreed to an in-principle settlement of the unfair dismissal application on the basis that Blue Chip would pay Mr Free the equivalent of 5 weeks’ salary.

7.        On the basis of the settlement, January Hearing was vacated to enable the parties to draw up a written settlement agreement.
8.        On 18 January 2021, Blue Chip’s solicitor sent Mr Free’s solicitor a draft deed of release. It was a term of the deed that the settlement sum (being $9,000) would be paid less applicable taxes. Such taxes are required to be deducted by law.
9.        On 17 February 2021, Mr Free (by his solicitor) refused to agree to an amount being withheld from the settlement sum for taxes.
10.      On 18 February 2021, Blue Chip (by its solicitor) notified Mr Free’s solicitor that the settlement sum did not fall into a tax-exempt category it will be subject to taxation.
11.      On 24 February 2021, Mr Free (by his solicitor) applied to have the matter relisted for a hearing.
12.      On 29 March 2021,
a.         Mr Free’s legal representatives gave notice that they ceased acting.
b.        Blue Chip’s solicitor sent Mr Free a copy of the draft deed and invited him to indicate with what parts he did not agree ahead of the settlement conference.
c.         Mr Free responded by stating that he deduced that Blue Chip had no sincere intention to settle the matter and that there was no chance to resolve the matter without the intervention of the Commission.

13. The matter was listed for a conciliation conference on 13 April 2021 at which Blue Chip advanced the same offer it had made previously. Mr Free did not accept the offer and made a counter-offer of an amount substantially higher than Blue Chip’s previous offer. The matter did not settle at the conference.”

Blue Chip provided the following breakdown of costs it incurred:

“1. 21/10/20 Advising client $2,035.00

2. 18/11/21 Advising client $1,989.90

3. 18/11/21 Advising client, statements and submissions $13,691.70

4. 01/02/21 Advising client, settle statements and $16,340.86
submissions

5. 23/03/21 Advising client $1,721.50

6. 04/05/21 Advising client $2,281.40

7. 16/6/21 Advising client, hearing $15,386.80”

Directions were issued requiring the parties to file witness statements and submissions. On 30 June 2021, Mr Free sent the following email to my chambers:

“Dear Commissioner,

I have been making my best endeavours to obtain professional legal assistance in relation to this matter. I am informed that there is nothing available for me until at least mid-July. I have been asked to try to get more time so that I can have the opportunity to properly brief a solicitor and to receive their advice and assistance.
I am requesting an extension of time to submit my witness statement until I have had the opportunity to receive appropriate advice.

Thank you.
Kind regards,
Owen Free…”

Blue Chip complied with the directions, filing submissions in support of the cost application and a witness statement of Andrew Bland on 2 July 2021, discussed below.

On 4 July 2021, Mr Free sent the following email to my chambers:

“Dear Commissioner,

I am writing to you to request more time to provide a response as per your advice of 30 June 2021.

Commissioner, you said in the hearing on 19^th May, that ‘You might decide today after this, how you think you went. Parties always can have a self-assessment as to how they think they went. You’ve got your wife there. She might tell you how you think you went.’

I report that I did conduct a self- assessment, and my conclusion was that I was subject to legal opportunism and did not properly discharge the burden of telling my story and impeaching the contrary statements of the respondent. It is important that I learn from that experience and don’t try to bumble through unassisted again.

After talking to staff of the Fair Work Commission, I was given information about free (not for profit) service options to get advice and assistance. I have contacted these organizations, and I am in a queue awaiting the availability for a proper appointment. This was the situation when I conducted Chambers to request more time.

It is important, [and even more so, since receiving the Cost Applicants material, which to me is voluminous and complex beyond my ready capacity to properly respond to], that I do not let my lack of skill lead to my exploitation.

I have been told that I would not be able to get an appointment before the middle of this month, and I am not sure that that appointment would be all that is needed to furnish you with my response.

I am still being subject to unprofessional and unlawful behaviour by the respondents, I still have not received mine and my family’s property and information that they have been withholding since my sacking.

I note that the Commission has granted deferrals and extensions at the request of the respondent during the carriage of this matter, and that I have fitted in with the time frame. I think it is only fair that I be given appropriate consideration now. I propose to get back to you with an exact time request once I have had the advice I am waiting for.

Thank you for your consideration of my request.

SINCERELY,

OWEN FREE”

On 5 July 2021, Blue Chip objected to Mr Free’s request for an extension of time as follows:

“Commissioner

My client’s objects to an extension of time for Mr Free.

He has been on notice since the day that he withdrew his application that the employer would likely make an application for costs and he has had ample time to seek advice.

He chose not to have representation at the hearing, after having representation all the way up to and beyond the settlement that was reached, and we submit he is well versed in the way in which proceedings in the FWC are conducted.

As can be seen from the statement and submissions, my client has been to great expense in defending the claim brought against him and there should be no further delay in having all matters resolved.

We will not comment on the parts of his letter that relate to matters outside the Commission’s jurisdiction, except to say that they are not true.

Regards

Andrew Bland | Principal”

I considered that there was no prejudice to Blue Chip in the Commission granting to Mr Free the extension he sought. I granted an extension of time to Mr Free, amending the Directions so that Mr Free was required to file a witness statement and submission in reply to the costs application by 20 July 2021. Mr Free complied with the direction.

Blue Chip filed further submissions in reply and a witness statement of Mr Bland on 30 July 2021.

On 1 August 2021, Mr Free sent correspondence to my chambers advising the following:

“Dear Commissioner Hunt,

I sent you this email in hope that you can tell me that this matter can be brought to an end.
I was bullied (As defined in section 789FD of the Fair Work Amendment Act 2013 (Cth)) in the last months of my employment with Bluechip the bullying changed but did not cease after my sacking. I withdrew my case for unfair dismissal thinking that it would stop, it continues even now in front of you. I say again that I do not have the bandwidth to continue to cope with these attacks that are clearly aimed at deliberately damaging me. Please know that I do not concede any of the assertions that have been made to contradict my evidence. I am asking for the sake of humanity that this emotional, physical and financial stress can end.
If this is not possible may I ask for some procedural guidance as to what is necessary so this can be finished.

Kind Regards,
Owen Free…”

On 3 August 2021, I wrote to the parties advising that unless any of the parties requested a hearing, I would determine the matter of the costs application on the papers. I directed the parties to advise their views by 5 August 2021. Mr Bland advised that Blue Chip was content for the matter to be decided on the papers, and no response was received from Mr Free.

On 12 August 2021, I wrote to the parties to confirm that my decision in the costs application was reserved.

Submissions and Evidence of Blue Chip

Blue Chip raised three grounds on which costs are sought, being:

· Ground 1: No reasonable prospect of success (s.611(1)(b))
· Ground 2: Resiling from a settlement agreement (s.400A)
· Ground 3: Unreasonable rejection of settlement offer (s.400A)

Blue Chip broadly submitted:

“Blue Chip is a small business. As explained in further detail below, it made genuine attempts to settle these proceedings on generous terms to Mr Free to avoid both parties having to incur the time and expense of a hearing. While Mr Free accepted a settlement offer shortly before 18 January 2021, he later resiled from that offer and rejected latter attempts to agree to reasonable settlement terms. It was not until after Blue Chip incurred further legal costs preparing for and attending a subsequent member assisted conference and hearing that Mr Free discontinued his application.”

Ground 1: No reasonable prosect of success (s.611(1)(b) of the Act)

In its F6, Blue Chip provided the following submissions in respect of this ground:

“21. Further and alternatively, it should have been reasonably apparent to Mr Free that the unfair dismissal application had no reasonable prospect of success within the meaning of s 611(1)(b) of the Act, because (among other things):

a. it was patently clear from the evidence and submissions that:

i.as a small business employer, the Small Business Fair Dismissal Code (the Code) applied to the dismissal;

ii.Blue Chip believed on reasonable grounds that Mr Free’s conduct was sufficiently serious to justify immediate dismissal;

iii.the argument by Mr Free of the reasons for dismissal as being a pretext were misconceived; and

iv. therefore, the application was manifestly untenable.

b. by his letter of withdrawal, Mr Free conceded that the Code meant that the application could not succeed. It ought reasonably to have been apparent at the outset of these proceedings that this was the case.

In its submissions dated 2 July 2021, Blue Chip submitted, in respect of Ground 1:

“Principles: s 611
5. Section 611 of the Act sets out the Commission’s power to award costs in certain situations. Under s 611(2), the Commission may award costs against a party if the Commission is satisfied relevantly that:
a. the party’s application was made (among other things) without reasonable cause (s 611(2)(a); or
b. it should have been reasonably apparent to that party that its application had not reasonable prospect of success (s 611(2)(b)).

6. The Commission must be satisfied that its discretion under s 611(2) is enlivened and that it is appropriate to exercise the discretion.1 The discretion must be exercised judicially and having regard to the circumstances of the case. The Commission has held recently that where a statutory pre-condition for a costs order has been enlivened, it would be a ‘pyrrhic victory’ for a costs order not to be made unless there is good reason to decline the order.
7. The terms ‘without reasonable cause’ in paragraph (a) and ‘no reasonable prospect of success’ in paragraphs (b) overlap. However, paragraph (a) is directed to a consideration of the circumstances at the time the unfair dismissal application is made, whereas paragraph (b) may arise at various points of time during the progress of a matter before the Commission, such as after the filing of evidence. The phrase ‘it should have been reasonably apparent’ in s 611(2)(b) of the Act is determined objectively rather than by reference to the subjective beliefs of the applicant.

8. A case will have no reasonable prospect or be without reasonable cause if it is ‘manifestly untenable or groundless’, or ‘so lacking in merit or substance as to be not reasonably arguable’. In Kanan v Australian Postal and Telecommunications Union (1992) 43 IR 257, Wilcox J at 264-5 held:
It seems to me that one way of testing whether a proceeding is instituted “without reasonable cause” is to ask whether, upon the facts apparent to the applicant at the time of instituting the proceeding, there was no substantial prospect of success. If success depends upon the resolution in the applicant's favour of one or more arguable points of law, it is inappropriate to stigmatise the proceeding as being “without reasonable cause”. But where, on the applicant's own version of the facts, it is clear that the proceeding must fail, it may properly be said that the proceeding lacks a reasonable cause. That is the situation in the present case. The qualification of s 347 applies. The Court has power to order costs against the applicant. (Emphasis added)

Application
9.        At all times, it was common ground between the parties that Blue Chip is a small business employer within the meaning of s 23(1) of the Act in that it had fewer than 15 employees at the time of Mr Free’s dismissal. Relevantly, there were 12 employees (including Mr Free). Accordingly, the Small Business Fair Dismissal Code (the Code) applied.
10. A summary dismissal is consistent with the Code if the employer believes on reasonable grounds that the employee’s conduct is sufficiently serious to justify immediate dismissal. The Code provides a non-exhaustive list of types of misconduct including theft and fraud. Where the misconduct in question involves theft or fraud, the dismissal is deemed fair if the matter has been reported to the police, although this is not an express requirement. Regulation 1.07 of the Fair Work Regulations 2009 (Cth) provides that serious misconduct includes wilful or deliberate behaviour by an employee that is inconsistent with the continuation of the contract of employment. Such conduct includes refusing to carry out a lawful and reasonable instruction.
11.      It is not necessary for the Commission to have found that Mr Free in fact engaged in serious misconduct. Rather, the inquiry is whether, at the time of the dismissal, employer held a genuine belief that the employee’s conduct was sufficiently serious to justify immediate dismissal.
12.      Mr Free was dismissed on four grounds, namely:

a.         a refusal to follow a reasonable management direction in relation to the review and requests for information by the Australian Tax Office (the ATO);
b.        a refusal to follow a reasonable management direction to explain the representation on the tax return for FY 2016-2017 Montrose Superannuation Fund (the Montrose Fund) that Geoff Sexton had audited the fund when in fact he had not;
c.         a refusal to follow a reasonable management direction for Mr Free to hand over his office keys and work laptop on 18 September 2020; and
d.        dishonest conduct in relation to the handling of the Montrose Fund, being the inclusion of Mr Sexton as the auditor on the FY2016-2017 tax return.

13.      Mr Free was summarily dismissed after Blue Chip had put the allegations to Mr Free in writing on two occasions and invited him to respond to those allegations. The basis upon which Mr Free sought to impugn compliance with the Code was to suggest that the allegations were a pre-text to remove him given the impending sale of the Blue Chip business (of which Mr Free had an indirect equity interest). The argument was entirely misconceived. First, there was no factual basis for the allegation of a pre-text. The fact was that Mr Sexton (who, as director of Blue Chip, was entrusted with the management of the company), held a genuine belief as to the matters that were basis of the dismissal. Secondly, the idea of a pre-text as contended by Mr Free lacked any commercial sense. On Mr Free’s own evidence, his departure from the business would have had a detrimental impact on the value of the business. The notion that it was in Blue Chip’s commercial interests to remove Mr Free prior to the sale was an absurdity. Thirdly, the matters concerning the handling of the Montrose Fund were reported by Mr Sexton both to Chartered Accountants Australia and New Zealand and the Tax Practitioners Board.
14.      In any event, the unfair dismissal application was untenable on Mr Free’s own version of events. That is, if his own evidence was accepted by the Commission, his conduct would justify a summary dismissal for serious misconduct. Two matters illustrate this.
15.      First, one of the grounds on which Mr Free had been dismissed was he had lodged the FY2017 tax return for the Montrose Fund with Mr Sexton stated as the auditor. Mr Free’s evidence was that he believed that Mr Sexton was in fact the auditor, and he did not make any representation that Mr Sexton audited the fund. (The ‘representation’ was the statement on the tax return (part 6 of the form) that Mr Sexton was the auditor.) Mr Sexton was unequivocal in his evidence that he was not the auditor. He was not able to be the auditor as the auditor must not have a family or business connection with the entity being audited. Further, Mr Sexton was the subject of restrictions in respect of auditing self-managed superannuation funds imposed by ASIC.
16.      Mr Free’s own evidence was that:
a.         he was aware that Mr Sexton was the subject of restrictions in respect of auditing and could not audit the Montrose Fund (PN1762).
b.        on 29 June 2020, Mr Free saw the FY2016-2017 tax return for the Montrose Fund (PN1766 and PN1803). The objective evidence from the HandiTax and HandiLedger records shows that Mr Free accessed various files concerning the fund. Mr Free said he was ‘looking’ and may have made ‘cosmetic changes’ (PN440).
c.         he accessed the tax return both by going to the file room and pulling out the physical file and by looking on the firm’s software programs (PN1769).
d.        he noticed that Mr Sexton was stated as the auditor on the form (PN1806 and PN1816).
e.         he agreed that it was not appropriate for Mr Sexton to be the auditor (PN1809 and PN1818).
f.         he said the return had been completed but had not been lodged (PN1767 and PN1804).
g.        notwithstanding that he accepted that Mr Sexton ought not have to been the auditor, Mr Free was happy for the return to be sent to the ATO (PN1819) and then proceeded to code the return as being ready to be sent to the ATO (PN1823) with the intention that it would be sent to the ATO (PN1807 and PN1824).

17.      In those circumstances, Mr Free’s actions (if his evidence was accepted) would amount to serious misconduct. It is conduct which would have exposed the firm to serious reputation damage and to potential further regulatory action against Mr Sexton. Mr Free attempted to downplay the significance of this by suggesting that risk to Mr Sexton was low because ‘he already was atoning for the sins’ of the period. In other words, Mr Free was counting on ASIC/ATO treating the anomaly in the tax return as being part of a suite of previous issues between ASIC/ATO and Mr Sexton.
18.      The second matter concerns Mr Free’s refusal to follow reasonable management directions for the production of information in order for Blue Chip to respond to a review bring conducted by the ATO. While Mr Free disputed the existence of some of these directions, it was his evidence that he preferred to adopt what he considered a ‘workable solution’ involving contacting the ATO rather than to follow a direction by management. That would involve speaking directly with the ATO and bypassing Deborah Scanlan who had been designated by Mr Sexton as the contact person to the ATO during the review.
19.      The two matters ought to have been apparent to Mr Free at the time he commenced his unfair dismissal application. They were matters within his own knowledge.
20.      Further, the grounds upon which Mr Free was dismissed were traversed in the correspondence (being the ‘suspension letter’, the ‘show cause letter’ and the dismissal letter) leading up to the application.
21. Mr Free acknowledged in his letter withdrawing his application that the issue of Blue Chip’s compliance with the Code presented a significant problem in the prosecution of his application. That matter ought reasonably to have been apparent at the outset of this proceeding. It is relevant that Mr Free was represented by a solicitor and counsel at material times during this proceeding. His unfair dismissal application states the name of counsel engaged by Mr Free as a representative (DCB6) and, on 9 December 2020, notice was given that a solicitor had also been engaged: Bland [12]. In cross-examination, he volunteered that he had the assistance of a lawyer in relation to the correspondence anterior to the dismissal.
22. In view of the circumstances, it should have been apparent to Mr Free at the commencing of his application that the unfair dismissal application was manifestly groundless and without reasonable cause, such that the application ought not to have been made. Alternatively, Mr Free ought to have realised this at least after Blue Chip filed its evidence and submissions that the proceedings had no reasonable prospect of success. Blue Chip submits that the discretion in both parts of s 611(2) of the Act has been enlivened and that costs should be awarded in its favour.”

Ground 2: Resiling from a settlement agreement (s.400A of the Act)

Blue Chip provided the following submissions in its F6 as to this ground:

“16.       The resiling by Mr Free of the in-principle settlement agreement was an unreasonable act by Mr Free with the conduct or continuation of the matter within the meaning of s 400A of the Act, because:
a.         the matter had to be relisted for another conciliation conference and another hearing;
b.        no reasonable explanation or justification had been provided by Mr Free as to why he resiled from the agreement;
c.         the terms of settlement were reasonable and, in the light of Mr Free’s prospects, generous; and
d.        of the reasons described in paragraph 19 below.

17.      In the premises, Blue Chip incurred costs by the unreasonable acts or omissions of Mr Free described in the preceding paragraph, which costs included:
a.         the costs of preparing drafts of the settlement deed;
b.        costs of attendances between 18 January 2021 until the date of the withdrawal of the matter;
c.         the costs of preparing for and attending the conciliation conference in April 2021;
d.        the costs of instructing counsel to prepare for and appear at hearing;
e.         counsel’s costs of preparing for and appearing at hearing.”

On 2 July 2021, Blue Chip provided the following detailed submissions as to Ground 2:

“23. Further and in the alternative, Blue Chip submits that the Commission should exercise its discretion under s 400A(1) of the Act by reason of Mr Free’s failure to discontinue the proceedings following a settlement and, separately, failing to accept subsequent offers by Blue Chip to settle the proceedings. The failure by Mr Free to discontinue as part of settlement resulted in the unnecessary prolongation of these proceedings and Blue Chip having to incur unnecessarily additional legal costs.

Settlement and offers
24.      Mr Bland’s statement sets out the procedural history about attempts to settle this matter. The relevant events can be summarised as follows.
25. The unfair dismissal application was listed originally for hearing on 18 January 2021. The Friday before the hearing (15 January) an in-principle agreement was reached between the parties’ lawyers that Blue Chip would pay Mr Free 5 weeks’ of his salary in settlement of the matter: Bland [17].
26.      Having reached a settlement, the Commission vacated the hearing on the morning of 18 January 2021 at the request of the parties. This would enable them to focus on drawing up terms of a deed recording the settlement.
27.      Blue Chip’s solicitor, Mr Bland, sent a draft deed of settlement on 18 January 2021 to Mr Free’s solicitor. The settlement sum was recorded as $9,000 (being 5 weeks’ salary) less applicable taxes. The settlement deed contained mutual releases and other clauses that are standard in settlement deeds.
28. There was a considerable delay in Mr Free’s solicitor responding to the deed. In fairness to Mr Free, it seems that some of that delay may have been the result of his solicitor working on another matter: Bland [21]. Finally, a response to the deed was provided on 5 February 2021: Bland [22]. Mr Free had proposed a number of changes to the draft deed including in relation to the provision of a separation certificate and Mr Free being able to conduct his own business: Bland [24]. Many of these changes were accepted by Blue Chip.
29. A point of contention arose around Mr Free wishing to be paid $9,000 without applicable taxes. This was not agreed by Blue Chip. For reasons explained below, the settlement sum would have been subject to taxation. Mr Free also sought to carve out of the release entitlements for accrued long service leave. This despite this issue not having been mentioned since termination: Bland [25]. Further, at no time, did either Mr Free or his solicitor explain what accrued leave existed (if at all).
30. Blue Chip’s position was communicated to Mr Free’s solicitor on 18 February 2021 with a revised copy of the draft deed: Bland [26]. From this point, there was little communication from Mr Free about settlement. On 24 February 2021, his solicitor asked the Commission to list the matter for hearing: Bland [28]. Commissioner Hunt direct that there be a member assisted conference on 13 April 2021.
31. Blue Chip, through Mr Bland, attempted to resolve the issues concerning the settlement deed. On 24 February 2021, Mr Bland asked Mr Free’s solicitor to respond to the latest version of the deed: Bland [30]. There was no response. Over a month later, on 29 March 2021, Mr Free’s solicitor gave notice that he ceased acting.

32. Upon receiving this notice, Mr Bland asked Mr Free to respond to the draft settlement deed: Bland [31]. The response from Mr Free indicated he was ‘not interested in engaging in this discussion’ and suggested that Blue Chip had no sincere intention to settle the matter without extending the scope to ‘legitimise’ Blue Chip’s ‘other tortious misconduct’: Bland [32]. The response was misconceived given that the releases included an exception for disputes concerning the Blue Chip Accounting Unit Trust.
33. Undeterred by Mr Free’s response and in the interests of attempting to ensure that the settlement discussions at the member assisted conference productive, Mr Bland asked Mr Free to provide examples: Bland [33]. In his response, Mr Free did not do so and instead said that the experience of negotiating the deed left him ‘sceptical’ of Blue Chip’s sincerity: Bland [34]. He also indicated that his ‘priorities have changed’ (although giving no explanation as to what he meant) and that he would now want something ‘substantially better’ than what had originally been agreed: Bland [35].
34.      At the member assisted conference, Mr Bland again restated that Blue Chip was willing to settle for the amount previously agreed. Ultimately, Mr Free sought an amount in excess of the 26-week compensation cap.
35.      As a result of the parties not being able to settle at conference, and Mr Free’s unwillingness to discontinue on the basis of what had been agreed in early January 2021, the matter proceeded to hearing on 19 May 2021 after which Mr Free discontinued his application unilaterally.
Principles
36. Under s 400A(1) of the Act, the Commission may make an order for costs against a party to a matter arising under Part 3-2 if the Commission is satisfied that the costs were incurred because of an unreasonable act or omission by that party in connection with the conduct or continuation of the matter.
37.      The power to award costs under s 400A (and the synonymous provision in s 570(2)(b)) has been used in cases where one party has rejected a reasonable offer made by another party. The explanatory memorandum to the section provides:
“170 The FWC’s power to award costs under this provision is discretionary and is only exercisable where the first party (whether the applicant or respondent) causes the other party to incur costs because of an unreasonable act or omission. This is intended to capture a broad range of conduct, including a failure to discontinue an unfair dismissal application made under section and a failure to agree to terms of settlement that could have led to the application being discontinued.” (emphasis added)

38. The issue of whether the rejection of a settlement offer is an unreasonable act within the meaning of s 400A will depend on the circumstances of the case. In Brazilian Butterfly Pty Ltd v Charalambous (PR968915; AIRCFB; 25 August 2006), the Full Bench at [43] (in relation to s 170CE of the now repealed Workplace Relations Act 1996 (Cth)) considered the following to be relevant although not exhaustive:

a.         the terms of settlement offered in relation to the relief sought by the applicant;
b.        the relative strengths of the parties’ cases in relation to relief and liability;
c.         the assessment of the merits in the certificate issued by the Commission pursuant to s 170CF(2);
d.        the likely length and costs of proceeding to a hearing if the matter does not settle; and
e.         any adverse consequences that will accrue to a party if they accept a settlement on particular terms rather than successfully prosecute the application.

39.      In relation to a party considering its prospects, a ‘party cannot simply disregard matters that should have been reasonably apparent and then claim that such matters were not apparent to them’.
40.      In Fugura v Frankston City Council [2012] FCA 1299, Tracey J at [31] held that a party’s ‘deliberate decision to refuse a reasonable offer of settlement is a factor which would normally weigh more heavily in favour of a finding of unreasonable action than would a mere failure to respond by an unrepresented litigant’.
Application
41.      Blue Chip submits that there was an in-principle settlement reached between the parties as at 15 January 2021 being that Blue Chip would pay Mr Free 5 weeks’ salary in exchange for the discontinuance of the proceedings. Mr Free’s reneged on that in-principle agreement which caused the matter to be set down for a conference and then a hearing.
42.      The conduct of Mr Free amounted to an unreasonable act in the conduct or continuation of the proceeding for several reasons.
43.      First, the terms of the settlement were generous in view of Mr Free’s prospects. As addressed above, the claim was manifestly untenable including by reason of the application of the Code. Even if Mr Free had a basis to argue his case, objectively the claim had poor prospects. This ought reasonably to have been apparent to Mr Free at the time of the settlement agreement. Accordingly, the settlement sum was generous.
44.      The five weeks’ salary accords with Mr Free’s notice period. During the hearing, there was an exchange between the Commissioner and Mr Free about the Code (PN2133). Relevantly, Mr Free said:
Mr Free: … Sub-regulation 3 does not apply if the employee is able to show that in the circumstances the conduct engaged in by the employee was not conduct that made employment in the period of notice unreasonable. That's quoting regulation 174. And what I thought about that was even if I had done the things that I was accused of and deny, they were not consistent with me not continuing in my role for another five weeks, that's the notice period, as it was clear from the fact that more time than that had passed already without any heightened risk to the business. The summary dismissal was purely a greed-based motive to deny me my lawful entitlements.

“In our view the authorities establish the following principles:
(1) The purpose or policy of the section is to free parties from the risk of having to pay their opponents’ costs in matters arising under the Act, while at the same time protecting those parties who are forced to defend proceedings that have been instituted vexatiously or without reasonable cause.
(2) It follows from the protection offered by s 570(2) that a person will rarely be ordered to pay the costs of a proceeding. But it is not necessary to prove that there are exceptional circumstances warranting the making of an order: Spotless Services Australia Ltd v Senior Deputy President Jeanette Marsh [2004] FCAFC 155 (Spotless) at [12]–[13] (to the extent that the Full Court in Council of Kangan Batman Institute of Technology and Further Education v Australian Industrial Relations Commission (2006) 156 FCR 275 (Kangan) held otherwise, we would respectfully disagree).”

In Eghlima and another v Winco Systems Pty Ltd,[3] after considering a distillation of previous authorities of this Commission and its predecessors, Deputy President Sams highlighted the discretionary nature of the costs jurisdiction, and observed:

“A number of important propositions arise from s 611 of the Act and the authorities to which I have just referred:
1. Unlike the general courts, costs in FWC proceedings do not ‘follow the event’.
2. The award of costs in industrial matters is to be approached with caution and with a strict application of the criteria expressed in subsection (2) of s 611 of the Act.
3. The three preconditions to the exercise of discretion in subsections (1) and (2) are disjunctive, meaning only one of either of the notions of ‘vexatiously’, ‘without reasonable cause’ or ‘no reasonable prospects of success’ need to be satisfied before the Commission may exercise its discretion to award costs.
4. Even if the Commission finds that the preconditions of subsection (2) are all, or either of them met, the Commission retains a discretion as to the extent or at all, of any costs order.
5. Nevertheless, the Commission’s power to award costs is quintessentially an exercise of discretion.”

Section 611(2)(a) of the Act prescribes that a costs order can be made if the Commission is satisfied that the applicant made the application vexatiously or without reasonable cause, or the respondent responded to the application vexatiously or without reasonable cause. The meanings of the terms ‘vexatiously’ and ‘without reasonable cause’ were discussed in Church v Eastern Health t/as Eastern Health Great Health and Wellbeing (Church).[4] The Full Bench in that decision said the question of whether an application was made vexatiously looks to the motive of the applicant in making the application. An application is made vexatiously where the predominant purpose is to harass or embarrass the other party or to gain collateral advantage.

The Full Bench referred to the decision in Hamilton v Oades where Deane and Gaudron JJ stated:[5]

“The terms ‘oppressive’ and ‘vexatious’ are often used to signify those considerations which justify the exercise of the power to control proceedings to prevent injustice, those terms respectively conveying, in appropriate context, the meaning that the proceedings are ‘seriously or unfairly burdensome, prejudicial or damaging’ and ‘productive of serious and unjustified trouble and harassment’.”

The words “without reasonable cause” was also considered by the Full Bench. The Full Bench stated:

“… A party cannot be said to have made an application ‘without reasonable cause’, within the meaning of s.611(2)(a), simply because his or her argument proves unsuccessful.[6] The test is not whether the application might have been successful, but whether the application should not have been made.[7] In Kanan v Australian Postal and Telecommunications Union,[8] Wilcox J put it this way:

“It seems to me that one way of testing whether a proceeding is instituted ‘without reasonable cause’ is to ask whether, upon the facts apparent to the applicant at the time of instituting the proceeding, there was no substantial prospect of success. If success depends upon the resolution in the applicant’s favour of one or more arguable points of law, it is inappropriate to stigmatise the proceeding as being ‘without reasonable cause’. But where, on the applicant’s own version of the facts, it is clear that the proceeding must fail, it may properly be said that the proceeding lacks a reasonable cause.”

In the decision of Keep v Performance Automobiles,[9] the Full Bench said the following:

“The proper construction of s.611(2)(a) was recently considered by a Full Bench in Church v Eastern Health t/as Easter Health Great Health and Wellbeing (Church). Church is authority for the following propositions:

(i)The power to order costs pursuant to s.611(2)(a) should be exercised with caution and only in a clear case[10].

(ii)A party cannot be said to have made an application ‘without reasonable cause’ within the meaning of s.611(2)(a), simply because his or her argument proves unsuccessful[11].

(iii)One way of testing whether a proceeding is instituted ‘without reasonable cause’ is to ask whether upon the facts known to the applicant at the time of instituting the proceeding, there was no substantial prospect of success[12].

(iv)The test imposed by the expression ‘without reasonable cause’ is similar to that adopted for summary judgment, that is, ‘so obviously untenable that it cannot possibly succeed’, ‘manifestly groundless’ or ‘discloses a case which the Court is satisfied cannot succeed.’’[13]

Section 611(2)(b) of the Act prescribes that a cost order can be made if the Commission satisfied that it should have been reasonably apparent to the applicant that the application had no reasonable prospect of success.

In Clothier v Ngaanyatjarra Media,[14] the Full Bench considered the meaning of the phrases “should have been reasonably apparent” and “had no reasonable prospect of success.” The Full Bench in that case cited Baker v Salva Resources Pty Ltd (Baker) with approval. In Baker it was said:

“[10] The concepts within s.611(2)(b) “should have been reasonably apparent” and “had no reasonable prospect of success” have been well traversed:

· “should have been reasonably apparent” must be objectively determined. It imports an objective test, directed to a belief formed on an objective basis, rather than a subjective test; and

· a conclusion that an application “had no reasonable prospect of success” should only be reached with extreme caution in circumstances where the application is manifestly untenable or groundless or so lacking in merit or substance as to be not reasonably arguable.”[15]

s.400A Costs orders against parties

The Full Bench in Gugiatti v SolarisCare Foundation Ltd[2016] FWCFB 2478 provided the following guidance as to the application of s.400A:

“Section 400A(1) establishes two pre-conditions for the making of an order for costs under the subsection (in addition to the requirement in s.400A(2)). The first is that the Commission must be satisfied that a party engaged in an unreasonable act or omission in relation to the conduct or continuation of a matter. The second is that such act or omission caused the other party to the matter to incur costs. Once these preconditions are satisfied, a discretionary power to order the payment of such costs is enlivened.”

The Full Bench in Veal v Sundance Marine Pty. Ltd. As trustee for Sundance Unit Trust T/A Sundance Marine[2013] FWCFB 8960 held that “[t]he phrase "unreasonable act or omission" was a component of provisions of s 170CJ(3) of the Workplace Relations Act 1996 (the WR Act).” In dealing with an application for costs pursuant to s.400A of the Act, the Full Bench has followed previous decisions of the Full Bench of the Commission made in respect of s.170CJ(3) of the WR Act. [16]
The Full Bench in Brazilian Butterfly Pty Ltd and Charalambous relevantly held that:[17]

“[39] Very strong prospects of success will not always justify a failure to participate in settlement negotiations initiated by a serious settlement offer from the other party. For example, where reinstatement is not sought and the amount offered by a respondent is equivalent to the statutory cap on compensation that can be ordered pursuant to s.170CH, it will likely be unreasonable for an applicant to fail to agree to a settlement on those terms, irrespective of how strong the applicant’s case is. Of course, even then, it is possible to conceive of circumstances where a failure to agree terms of settlement on the basis of such an offer would not be unreasonable. For example, depending upon the circumstances, it may be entirely reasonable for an applicant to insist upon a withdrawal of the dismissal and acceptance of a resignation in its stead if this were necessary to repair substantial damage done to an applicant’s professional reputation and future professional job prospects as a result of the dismissal.
[40] On the other hand, modest or even poor prospects of success on liability or remedy will not necessarily always make it unreasonable for a party to fail to agree terms of settlement that may lead to the discontinuance of the application. For example, an applicant who was a long term employee close to retirement may have very substantial contingent superannuation entitlements that will be lost unless he or she obtains reinstatement. The difference between the value of those contingent entitlements and the amount offered by the respondent as a monetary settlement may be so great as to make it reasonable for the applicant to refuse the respondent’s offer, notwithstanding that the applicants’ prospects of success are only modest or even poor. Again, each case will turn on its own facts.
[…]
[43] A reasonable person, who is a party to proceedings pursuant to s.170CE, when confronted with an offer of settlement from the other party, will determine whether, and if so, how to respond to such an offer after considering all the circumstances of the case, including:
· the terms of the settlement offered in relation to the relief sought;

· the relative strengths of the parties’ cases (and thus their relative prospects of success) in relation to both ‘liability’ and the relief sought;
· any assessment of the merits in the certificate issued by the Commission pursuant to s.170CF(2);
· the likely length and cost of proceeding to a hearing if the matter does not settle; and
· any adverse consequences that will accrue to a party if they accept a settlement on particular terms rather than successfully prosecute or defend the primary application, as the case may be.

[44] This list is not intended to be exhaustive. All of the circumstances are relevant and, as is made clear in the joint judgment in Blagojevch, there is no basis in the Act for giving primacy to any particular factor in every case.
[45] In many, if not most, cases there will be contested facts or contested interpretations of particular facts. What knowledge in this regard is to be attributed to the reasonable person considering whether, and if so, how to respond to an offer of settlement? The passage in Abbey, upon which the Commissioner relied was, clearly enough, an attempt to grapple with that problem. However, there is a tension between the way in which that passage is expressed and the apparent acceptance by the majority in Blagojevch that a party can act reasonably in responding to an offer of settlement by reference to that party’s “genuine perception or recollection of events”. The Full Court’s formulation is to be preferred although, even then, it is not to be seen as a substitute for the words of the Act. Of course, there is an issue as to what constitutes a “genuine” perception. The Full Bench in Kangan Batman TAFE observed, we think correctly, that:
“A party cannot simply disregard matters that should have been reasonably apparent and then claim that such matters were not apparent to them.”

[46] In other words, “genuine” perception is not necessarily the same as actual perception. The notion of “genuine” perception carries a value content: a person may not be able to assert that their actual perception of an event is a “genuine” perception if, for example, they have been confronted with compelling evidence that is inconsistent with that perception and simply disregard it. It goes without saying that a party’s perception of relevant facts will not be genuine if they ought be taken to have known that the facts were other than as they assert. Blagojevch provides the archetypal example of a party who puts forward a fabricated case.
[47] Moreover, confronted with disputed facts, or facts open to a range of interpretations, a reasonable person in the position of a party, when considering whether to agree to terms of settlement that may lead to the discontinuation of an application, will take account of the risk a central factual dispute will be resolved in favour of the other party or that central facts open to a range of interpretations will be interpreted in favour of the other party. This is not incompatible with an offeree responding to an offer in the light of the offeree’s genuine perception or recollection of events.”

Consideration

Was the application made vexatiously or without reasonable cause? - Ground 1 (s.611(2)(a)

A proceeding will be instituted vexatiously where the predominant purpose in instituting the proceeding is to harass or embarrass the other party, or to gain a collateral advantage. In Qantas Airways Ltd v Paul Carter,[18] the Full Bench found:

“We refer to the approach we have taken to considering if the provisions of s.611(2)(a) or s.611(2)(b) are established. We first deal with the application made on the basis that Qantas has made its appeal vexatiously. The approach generally taken by members of the Commission as to the meaning to be ascribed to the word “vexatiously” in s.611(2)(a) is to adopt the comments of Justice North in Nilsen v Loyal Orange Trust (Nilsen). Nilsen was decided in 1997 when the then Workplace Relations Act 1996 applied however the relevant provision considered by his Honour was in terms similar to s.611(2)(a) being whether an applicant “instituted the proceeding vexatiously or without reasonable cause”. About this provision his Honour said:
“The next question is whether the proceeding was instituted vexatiously. This looks to the motive of the applicant in instituting the proceeding. It is an alternative ground to the ground based on a lack of reasonable cause. It therefore may apply where there is a reasonable basis for instituting the proceeding. This context requires the concept to be narrowly construed. A proceeding will be instituted vexatiously where the predominant purpose in instituting the proceeding is to harass or embarrass the other party, or to gain a collateral advantage.” ”

Mr Free’s application to the Commission was made at a time when he was not represented. It is clear from his Form F2 that he was focussed on asserting that his dismissal was unfair. He used emotive language and made submissions relevant to whether Blue Chip had a valid reason for his dismissal and asserting that his dismissal was harsh, unjust or unreasonable.

These are all considerations for matters relevant to s.387 of the Act, and not matters for consideration when determining if the Small Business Fair Dismissal Code (the Code) has been complied with. I accept that at the time of making the application, Mr Free did not properly understand the Commission’s responsibility to determine his dismissal against the Code.

Mr Free certainly became aware of the Commission’s task when I issued directions to the parties requiring Blue Chip to file evidence and submissions relevant to the Code. In fact, when the Form F3 was completed by Mr Sexton on behalf of Blue Chip, he did not tick the jurisdictional objection of compliance with the Code. It is, regrettably, an area which may not always be understood by parties.

When Mr Free’s material became due, he was represented by a lawyer, and his material went to matters pertaining to the Code.

To find that Mr Free made the application vexatiously or without reasonable cause would require the Commission to be satisfied that Mr Free knew of the Commission’s obligation to apply the Code to applications before it, and he then ignored the lower threshold Blue Chip would be required to meet. I cannot be so satisfied, when it is clear that Mr Free was focussed on demonstrating that his dismissal was unfair, having regard to what he understood to be the harsh, unjust or unreasonable considerations. There is no evidence before the Commission that Mr Free appreciated at the time of making his application that the Commission would be largely focussed on Mr Sexton’s beliefs as to Mr Free’s conduct, without regard to whether the dismissal was harsh, unjust or unreasonable.

On account of Mr Free’s ignorance of the application of the Code, I cannot be satisfied that he made the application vexatiously or without reasonable cause.

No reasonable prospect of success - Ground 1 cont. (s.611(2)(b)

For the same reasons given above, I cannot be satisfied that it should have been reasonably apparent to Mr Free at the time that he made the application that the application had no reasonable prospect of success. He considered that he would be able to demonstrate that the dismissal was harsh, unjust or unreasonable, and therefore unfair. On the evidence before me, I cannot be satisfied that Mr Free had any appreciation at the time of making his application that the matter would be determined by considering if the Code had been complied with.

Did Mr Free cause costs to be incurred because of an unreasonable act or omission in connection with the conduct or continuation of the matter? - Grounds 2 and 3 (s.400A)

On 17 November 2020, Mr Free was in receipt of Blue Chip’s evidence and submissions relevant to the dismissal and its asserted compliance with the Code. The witness statements of Mr Sexton and Ms Scanlan were comprehensive, and the submissions were detailed.

Mr Free filed his material on 9 December 2020 and was represented at the time. His submissions went to matters pertaining to the Code. On 17 December 2020, Blue Chip filed statements in reply. The parties then purportedly reached in-principle agreement to settle the application in January 2021, however that fell through. On 29 March 2021, Mr Free’s legal representative notified the Commission that they had ceased acting for Mr Free.

By 17 December 2020, Mr Free had full and complete knowledge of Blue Chip’s case and the evidence it had given to the Commission. Particularly relating to the SMSF matter, Mr Sexton’s evidence was compelling. Mr Sexton had been very disturbed to learn of Mr Free’s action in finalising the 2017 accounts in late June 2020, and then purporting that Mr Sexton had audited the accounts, which he was prohibited from doing. Mr Sexton took prompt and prudent steps to notify the Tax Practitioners Board on 10 September 2020 of Mr Free’s activities.

I accept without any hesitation that Mr Free engaged in the activities of completing the 2017 SMSF accounts in late June 2020 and asserting that Mr Sexton had audited the accounts when he knew this to be untrue. Mr Free worked on the accounts in late June 2020 and had been in receipt of various communications over the years from the ATO informing him of the issues surrounding the accounts not having been completed. He chose to ignore the communications.

I am satisfied that Mr Sexton was improperly identified by Mr Free as the auditor of the 2017 SMSF accounts. Mr Sexton took swift action to declare that he had not done so, reporting the matter externally and putting to Mr Free what Mr Sexton considered he had done.

Mr Free ignored Mr Sexton’s request for an explanation in his letters to him of 21 August 2020 and 27 August 2020. His evidence is that he read the communication on or around 30 August 2020. Still, he failed to respond and attended for work over several days. Upon being suspended and responding to a show cause letter, Mr Free denied the allegation put to him.

In the termination letter to Mr Free, Blue Chip stated that a conclusion had been made that, despite his denials, no other parties would have the required information or reason to complete the 2017 return. Further, the electronic records on the files showed that Mr Free had accessed the files, which satisfied Blue Chip that there was evidence to a reasonable standard that Mr Free was responsible for filing the return and nominating Mr Sexton as the auditor.

The Commission’s consideration of the Code requires the Commission to determine if the employer believes on reasonable grounds that the conduct is sufficiently serious to justify immediate dismissal. I find that Mr Sexton properly concluded that Mr Free’s conduct justified immediate dismissal and that his belief was on reasonable grounds. I would go further to say that Mr Free was provided with ample opportunity over many weeks to know and process the very serious allegations against him. When he finally provided a response, I consider that both he knew, and Mr Sexton knew, that the response was false.

There were other reasons for the dismissal, including Mr Free’s belligerent failure to attend to ATO matters, including where Ms Scanlan would be the point of contact with the ATO and Mr Free had been asked to provide relevant information. I am satisfied that Mr Free failed to follow a lawful and reasonable direction over a number of weeks. I am satisfied that Mr Sexton properly concluded that Mr Free’s conduct justified immediate dismissal and that his belief was on reasonable grounds.

Having made determinations on the first two issues constituting the reasons for the dismissal, it is not necessary to determine the remaining two issues which go to conduct on 8 September 2020. It should be said, however, that Blue Chip’s assertion to Mr Free was that he claimed not to have his office keys, yet locked up the office. Mr Free’s response to Blue Chip was that he in fact said, “What if I don’t have them” does not detract from the reasonable view held by Blue Chip that Mr Free did have keys with him and had been dishonest.

Had it been necessary to determine the application before the Commission, I would most certainly have dismissed the application. Regarding the SMSF issue, Mr Sexton’s concerns were understandable and he properly realised that what he considered to be Mr Free’s actions could put the firm in jeopardy, and risk Mr Sexton’s reputation due to the restrictions on his activities that were in place at the time. Mr Sexton was right to conclude that Mr Free’s actions were unacceptable and intolerable, especially as Blue Chip was in the midst of a sale negotiation.

Mr Free’s concerns and paranoia around the potential sale of the business in mid-2020 makes no sense at all. I am satisfied that the last thing Blue Chip needed was a reason to dismiss Mr Free from his employment. Doing so put the potential sale off the table, and by the determinative conference, left Mr Sexton, Ms Scanlan and Mr Free as shareholders holding equity in a firm that was proving extremely difficult to sell.

Mr Sexton and Ms Scanlan lost significant potential payment upon dismissing Mr Free. I am satisfied, however, that Mr Sexton believed it was clearly the only option available to him given Mr Free’s deplorable conduct. I am satisfied the belief was reasonable.

Turning then to Mr Free’s continuation of the application once he was presented with the evidentiary case of Blue Chip, together with the excellent submissions relevant to Blue Chip’s compliance with the Code, Mr Free ignored the only possible result that could eventuate; his application would be dismissed.

There was some hope in January 2021 that the matter could be settled by payment of a modest sum of money, together with some negotiated terms. That is a very common occurrence in unfair dismissal applications and it is heartening that the parties attempted to resolve the matter between themselves. I would not award costs against Mr Free with respect to that period of time, even while Mr Free was represented and had available to him the ability to discuss with his legal representative the issue of the Code and the lower threshold required by Blue Chip to satisfy the Commission that the application ought to be dismissed.

Mr Free’s failure to resolve the settlement of the matter by a gross payment, less taxation is disturbing. As a taxation accountant, Mr Free ought to have known that the circumstances of the dismissal could lead to no other conclusion than settlement monies agreed between the parties being taxed.

Hope was again held out for the parties to resolve the application in the MAC in April 2021. Curiously, Mr Free sought to resolve the application for the payment of $56,000, yet did not suggest at that time that any compensation paid to him should be discounted by 40% on account of his equity in Blue Chip. Mr Free does, however, make such a submission in this application, that if costs are awarded, it should be taken into consideration that of the legal costs expended by Blue Chip, he has effectively contributed 40% of that cost by way of his equity. The submission is as ridiculous as his assertion that Mr Sexton audited the 2017 SMSF return.

In determining whether to award costs, I note the Explanatory Memorandum states that the provision is intended to capture a broad range of conduct, including a failure to discontinue an unfair dismissal application made under section s.394 and a failure to agree to terms of settlement.

I am satisfied that once Mr Free knew of Blue Chip’s evidentiary case and its submissions relevant to the Code, having regard to Mr Free being represented at the time, Mr Free caused costs to be incurred because of his unreasonable act in continuing his application and his unreasonable omission in failing to withdraw his application. It should have been apparent to him, knowing the matter would be determined in accordance with the Code, that his case was utterly hopeless. He says that he only came to the realisation that the Code presented a very large difficulty to him following the determinative conference, however I do not accept that was the first time he could reasonably have come to that conclusion.

Did Mr Free’s unreasonable act(s) or omission(s) in connection with the conduct or continuation of the matter cause Blue Chip to incur costs? - Grounds 2 and 3 (s.400A)

Mr Free’s unreasonable act and omission in connection with the conduct or continuation of the matter caused Blue Chip to incur costs. On the evidence before the Commission, negotiations were continuing between Blue Chip and Mr Free’s legal representatives in February 2021, with attempts to settle the matter for the payment of $9,000 and with restrictions and other matters being discussed. While ever Mr Free had representation in these negotiations, I accept that there were earnest attempts to resolve the matter.

However, once those negotiations fell through, I consider that Mr Free’s failure to withdraw the application resulted in Blue Chip incurring costs it ought not have been put to the expense of. I would exercise my discretion to not include any costs incurred by Blue Chip for its involvement in the MAC before Commissioner Booth.

Having satisfied myself that Mr Free caused Blue Chip to incur costs because of an unreasonable act or omission by Mr Free in connection with the conduct or continuation of the matter, I consider it appropriate to, and have decided to exercise my discretion to make an order for costs against Mr Free.

Conclusion

I consider it appropriate to make the order of costs for the period following the MAC before Commissioner Booth. On the evidence before the Commission, only the following items within Blue Chip’s record of costs follow the 13 April 2021 MAC:

6. 04/05/21 Advising client $2,281.40

7. 16/6/21 Advising client, hearing $15,386.80

I have concluded that it is appropriate to award indemnity costs on account of Mr Free’s insistence that the matter proceed to a full-day hearing where he knew the allegations against Mr Sexton relevant to the auditing of the SMSF 2017 accounts were false. I consider Mr Free’s conduct warrants the consideration in Post v NTI Limited T/A NTI[19] as to a special or unusual feature described at [30] of that decision.

An Order will be made concurrent with this decision for Mr Free to pay Blue Chip’s costs on an indemnity basis for the period 14 April 2021 and until 8 June 2021 when he discontinued his application. Blue Chip is to provide a written itemised assessment of the costs to Mr Free within 14 days of the Order, noting that the rate or amount claimed for items that are mentioned in the Schedule of Costs in Schedule 3.1 of the Fair Work Regulations 2009 must not exceed the rate or amount appearing in that Schedule pursuant to s.403(2) of the Act.

The parties are then directed to confer and seek to reach agreement on the quantum of the costs. If the costs are not agreed within 14 days of the receipt of the assessment by Mr Free, Blue Chip is to lodge the itemised assessment in the Commission for the purposes of taxing the costs.

The Order will require the costs to be paid within 28 days of the date of the order (if the quantum is agreed) or within 28 days of the date the costs are taxed by the Commission, whichever is the latter.

An Order [PR740155] to that effect will be issued with this Decision.

COMMISSIONER

[1] Section 402 of the Fair Work Act 2009.

[2] (2013) 232 FCR 428 at 430-431.

[3] [2013] FWC 2351, at [44].

[4] [2014] FWCFB 810.

[5] (1989) 166 CLR 486 at 502.

[6] R v Moore; Ex Parte Miscellaneous Workers Union of Australia (1978) 140 CLR 470 at 473; Nilsen v Loyal Orange Trust (1997) 76 IR 180 at 181 per North J.

[7] J-Corp Pty Limited v Australian Builders Labourers Federated Union of Workers (WA Branch) (1993) 46 IR 301 per French J.

[8] (1992) 43 IR 257.

[9] [2015] FWCFB 1956.

[10] [2014] FWCFB 810 at [27].

[11] Ibid at [30].

[12] see Kanan v Australian Postal and Telecommunications Union (1992) 43 IR 257, cited with approval in Church at [30].

[13] Heidt v Chrysler Australia Limited (1976) 26 FLR 257 at [272 - 273]; Geneff v Peterson (1986) 19 IR 40 at [87-88]; Hatchett v Bowater Tutt Industries Pty Ltd (1991) 28 FCR 324 at 327; Re Ross and others, Ex Parte Crozier (2001) 111 IR 282 at [12]; Re Australian Education Union (NT Branch) (No.2) [2011] FCA 728 at [30]. Also see Wright v Australian Customs Service, PR926115, 23 December 2002 per Giudice J, Williams SDP and Foggo C and Church at [33].

[14] [2012] FWAFB 6323 at paragraph [15].

[15] [2012] FWAFB 4014.

[16] [2013] FWCFB 8960.

[17] PR968915.

[18] [2013] FWCFB 1811, at [17].

[19] Post, Steven Patrick v NTI Limited T/A NTI – [2016] FWCFB 6765.

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